Noting that “at some point, there must be some endpoint to this time-consuming and expensive cycle of litigation,” a federal judge has dismissed a 401(k) excessive fee suit.
That “expensive cycle” dates back to October 2020 when a suit (Guyes et al. v. Nestle USA Inc. et al.) was brought in the U.S. District Court for the Eastern District of Wisconsin by Walcheske & Luzi, LLC on behalf of Lorie M. Guyes—a participant in the Nestle 401(k) Savings Plan until April 2020.
As other excessive fee suits have alleged, this one claimed that, “after an inquiry reasonable under the circumstances,” the defendants breached their fiduciary duties by “…among other things: (1) authorizing the Plan to pay unreasonably high fees for recordkeeping and administration (RK&A); (2) authorizing the Plan to pay unreasonably high fees for managed account services; and (3) engaging in self-dealing with regard to administration of the Plan.”
Where We’ve Been
In November 2022, a 19-page recommendation (Guyes v. Nestle USA Inc et al., case number 1:20-cv-01560, in the U.S. District Court for the Eastern District of Wisconsin) made relatively quick work in dismissing most of the plaintiff’s claims. Citing the Albert v. Oshkosh decision, U.S. Magistrate Judge Stephen C. Dries explained that “the complaint in this case does not provide the necessary context to support a plausible recordkeeping claim.” Rather, he noted that “the complaint alleges in conclusory fashion that the recordkeeping fees were excessive relative to the recordkeeping services received.”
Commenting that the complaint describes some of the services offered by recordkeepers—maintaining plan records, tracking participant account balances and investment elections, transaction processing, call center support, participant communications, and trust and custody services—and alleges that the defendants “received a standard package of [recordkeeping] services”—at the time he noted that “the complaint does not contain any allegations concerning the specific services performed by the comparator plans’ recordkeepers or any allegations supporting a plausible inference that the plan paid more for equivalent services.”
Then in January 2023, Judge William C. Griesbach accepted Judge Dries’ recommendation to dismiss the suit—but gave them 30 days to amend their suit with regard to certain points.
And they did—at which point Judge Griesbach, once again, turned to Judge Dries for his recommendation. And then, on August 23, 2023, Judge Dries recommended that Judge Griesbach (once and for all) dismiss the amended complaint. After which, Judge Griesbach noted that the plaintiff filed objections to the report and recommendation and, in the alternative, motion for leave to file a second amended complaint.
The Decision
However, and “after careful consideration of the Report and Recommendation, Plaintiff’s objections, and the record as a whole,” Judge Griesbach decided (Guyes et al. v. Nestle USA Inc. et al.) to adopt the report and recommendation of the Magistrate Judge in its entirety. In doing so, he noted that “the Magistrate Judge has correctly analyzed Plaintiff’s purported comparators and found them to be disparate to the plan at issue. Without any comparators, the complaint contains no allegations that the amount of recordkeeping and administrative fees paid by the Plan breached the fiduciary duty of prudence. Finally, Plaintiff’s breach of the duty to monitor claim is derivative of the breach of fiduciary duty claim. Because Plaintiff failed to state a breach of fiduciary duty claim, she also failed to state a breach of the duty to monitor claim.”
Judge Griesbach went on to note that “along with her objections, Plaintiff filed a motion for leave to file a second amended complaint,” but that “while courts should freely grant leave to amend the pleadings, grounds to deny leave to amend include “undue delay, bad faith, dilatory motive, prejudice, or futility”—apparently deciding that this case fell into those grounds.
“This case was filed on October 9, 2020,” Judge Griesbach wrote, “and Defendants have already been through two rounds of motions to dismiss. Plaintiff seeks to amend the complaint for a second time to add new comparator plans within a much narrower band based on participant and asset size. But she does not explain why she could not have included these comparators in an earlier complaint.” He continued, “Granting leave to amend yet again would require a third round of briefing on the very same issues and cause undue prejudice to Defendants. At some point, there must be some endpoint to this time-consuming and expensive cycle of litigation. For these reasons, Plaintiff’s motion to amend is denied.”
What This Means
Judge Griesbach was the judge in the Albert v. Oshkosh case, which was one of the first to push back on what had been relatively simplistic comparisons of allegedly comparable plans based solely on participant count and asset size—instead insisting on a comparison of services rendered for those fees. It is a case that has been broadly cited in other districts and—not surprisingly, considering the involvement of Judge Griesbach—was here also.
What remains a bit of a headscratcher is why so many additional opportunities were provided to the plaintiffs to address this shortfall—and perhaps why those extra opportunities were unfulfilled. All in all, it’s clear that that remains a high(er) standard of proof for plaintiffs—but one that, at least in this case, nonetheless required a lot of time and cost by the fiduciary defendants here.
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